11,000-Unit NYC Housing Complex Becomes "Pawn In A Financial Chess Game" As 1st Mtg Holder Sues To Stop Next Week's 2nd Mortgagee's Foreclosure Sale

In New York City, Crain's New York Business reports:

• Hedge fund honcho William Ackman’s plan to takeover Stuyvesant Town/Peter Cooper Village hit a major snag Wednesday afternoon. Bank of America and U.S. Bancorp, trustees for the senior lenders of the giant residential complex sued to block his plan to foreclose on the 110-building property(1) next week.

• Last week, Mr. Ackman, through a joint venture of his firm, Pershing Square Capital Management, and Winthrop Realty Trust snapped up a $300 million mezzanine loan, a key piece of the complex’s debt that stands between the owner’s equity and the first mortgage. They bought their stake for a mere $45 million, or 15 cents on the dollar. With that in hand they quickly scheduled a foreclosure auction for Aug 25, which they hoped to win.

• Wednesday’s suit, which was filed in New York State Supreme Court in Manhattan,(2) said Pershing and Winthrop violate the terms of the inter-creditor agreement for the property, which outlines how the loan will be paid by all the different creditors. The suit says that Pershing and Winthrop will file for bankruptcy once they take control of the property and will seek to avoid paying the mortgage.(3)

For more, see Banks sue to block Stuy Town foreclosure (BofA and U.S. Bancorp race to court to block an auction of the sprawling 110-building Manhattan residential complex, that had been set for Aug. 25).

See also The New York Times: Opening Legal Salvos in Stuyvesant Town Battle:

• Dan Garodnick, a city councilman who grew up and lives in Peter Cooper Village, said that he was disappointed but not surprised that the complexes were being treated as a “pawn in a financial chess game.”

For story update, see Court suspends Stuy Town foreclosure (On Sept. 2, Pershing Square Capital Management, Winthrop Realty Services and creditors will come together to haggle over the 110-building complex).

(1) The property consists of over 11,000 apartments and sits on about 80 acres of land. Reportedly, the current owner bought the complexes for a record-breaking $5.4 billion in 2006.

(2) The case is Bank of America Corp. v. PSW NYC LLC, 10-651293, New York State Supreme Court in Manhattan (New York County).

(3) With all this multi-million dollar jockeying around going on to snatch ownership of this complex, which on of these financiers does a tenant call to get a toilet unclogged?